From 10 January 2020, the Financial Conduct Authority (FCA) will be the anti-money laundering and counter terrorist financing (AML/CTF) supervisor for cryptoassets businesses, under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs).
As such, the regulator, which is funded by fees and levies from the firms it regulates, has now set out proposals for recovering the costs of this new role.
What are the proposed fees?
The FCA is proposing to introduce a £5,000 registration fee, based on its estimate that the total cost of the registration process will be about £400,000 and with some 80 potential applicants.
The regulator is also proposing annual periodic fees based on income for cryptoasset businesses, with £1,000 cited as a potential minimum fee.
Who would this apply to?
In April 2019, HM Treasury issued a consultation on transposing the EU's fifth Anti Money Laundering Directive (5MLD), which introduces new requirements for some cryptoasset businesses.
In the UK, 5MLD will be implemented by amending the MLRs.
The consultation listed the types of cryptoasset activities that will be included in the scope of the MLRs and amount to "cryptoasset businesses".
The Treasury has not yet issued its response to the consultation, which will confirm the final range of activities covered.
However, the FCA has said that the following cryptoasset activities and cryptoasset businesses carrying out these activities should assume that they must comply with the MLRs from 10 January 2020:
- cryptoasset exchange providers;
- cryptoasset Automated Teller Machine (ATM);
- custodian wallet providers;
- peer-to-peer providers;
- issuers of new cryptoassets, such as initial coin offering or initial exchange offering; and
- publication of open-source software, eg non-custodian wallet providers.
All UK cryptoasset businesses that carry on activities in scope of the MLRs will need to register with the FCA from 10 January 2020.
When registering, different dates apply:
- Businesses operating in the UK, already or intending to carry on cryptoasset activities from 10 January 2020, should apply to register with the FCA for AML/CTF purposes, including any business already registered or authorised for other activities.
- A new business that intends to carry on cryptoasset activities after 10 January 2020, must obtain FCA registration before it starts that business, in addition to other permissions it may require, particularly if the business is using security tokens or e-money tokens.
- An existing business that has been carrying on cryptoasset activities before 10 January 2020 must be registered by 10 January 2021 or stop that activity. An existing business that has been refused before 10 January 2021 must also stop its cryptoasset activity.
The FCA said businesses would do well to send their applications early to ensure they meet the deadlines.
In terms of what this means in practice, Hogan Lovells Parner Claire Lipworth offered this advice to crypto businesses:
"Crypto businesses need to prioritise AML as money laundering and financial crime remain one of the FCA's four cross-sector priorities. Becoming compliant is reasonably straightforward, but does require a bit of thought and time. Starting off with a risk assessment is key, as the systems and controls flow from there."
How to apply and process
An applicant will need to complete an online application form, which can be found on Connect, provide the relevant information and pay the registration fee.
Businesses will also need to demonstrate that they:
- have policies, controls and procedures in place to effectively manage AML/ CTF risks in line with their activities;
- can identify, assess, monitor and effectively manage their financial crime risks;
- show the steps taken to identify their AML/CFT risks; and
- regularly assess their policies and procedures so that they stay relevant and appropriate.
The FCA said that, once an application is complete, registration assessments should take three months, and that it will request more information if anything is lacking.
The FCA said that it expects that the amended MLRs will extend its existing enforcement powers to cryptoasset firms and that it will apply the same approach to cryptoasset firms under the amended MLRs as it does under the existing MLRs.
What happens now?
Responses in respect of the registration fee should be submitted by 11 November 2019, with the FCA intending to publish feedback and the legal instrument in its Handbook Notice in December.
Responses on the periodic fees should be submitted by 10 December 2019. The FCA will then provide feedback in its fee-rates consultation in April 2020.
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